The Devaluation of the Nigerian Naira May Have a Negative Impact on Heineken’s Nigerian UnitWritten by lanreePosted on 02 26, 2016
The Devaluation of the Nigerian Naira May Have a Negative Impact on Heineken’s Nigerian Unit.
The head office for Heineken’s Nigerian unit announced that a pending devaluation of the Naira by the Central Bank would negatively impact their earnings for the next 4 financial years. This statement was released on the back of a report released by South African-based NKC Independent Economists last week. The report stated that the Central Bank of Nigeria may be forced to lower its currency peg if foreign reserves continue to deplete.
The NKC Independent Economists reported a 13% decline in reserves this year alone, falling to $37.9bn. According to Godwin Emefiele, (Central Bank Governor elect), the devaluation of the Naira would ‘devastate’ the country.
Information provided by Nigerian Breweries states that Nigeria presently imports 40% of the raw ingredients needed to make beer. CEO, Nicolaas Vervelde stated in an interview dated March 31st that the percentage of raw materials imported to make Heineken is even higher than that of other beers because it contains a higher percentage of malted barley.
Statistics indicate that the Naira dropped to its lowest on record against the Dollar following allegations that President Goodluck Jonathan had suspended Governor Lamido Sanusi in February 2014 for “financial recklessness and carelessness”. At the time of publication, the Naira stands at 163.95 Naira to 1 US dollar; indicating a devaluation of 2.2% this year to date.
Although Nigerian Breweries are preparing to take a hit, they are confident that they will be able to recoup some of their losses during the upcoming election campaign which normally generate dramatic increases in spending. Nicolaas Vervelde stated in an interview that: “This year there is a pre-election spend and it flows through in 2015 and with that, the market accelerates in terms of growth”. Prior to the 2011 elections, the Nigerian government increased its budget by 17%; they are therefore likely to follow suit in the upcoming presidential elections in February 2015, where the People’s Democratic Party are forecasted to be up against stiff competition from the All Progressive Congress.
Nigerian Breweries, the second largest producer of Beer in Nigeria, has also reported an 11% devaluation in their shares in contrast with the 6.9% decline in the Nigerian Stock Exchange all share index (of which Heineken owns 38%). The stock dropped by 0.5% to 150.25 Naira in Lagos on the 27th March, appreciating the company at 1.14 trillion Naira.
Heineken had predicted an increase in sales for 2013 after sustaining a decline in 2013 in the Central and Eastern European regions which they had hoped to off-set by a growth in the African Market. However, Nicolaas Vervelde remains confident that the African Market will stabilize as it remains a viable market: “those fundamentals haven’t changed over recent years”. This is supported by statistics from the International Monetary fund, which predicts that Nigeria’s economy will expand by 7.4% this year.
Both Heineken and Nigerian Breweries have confirmed that the decline in the market is mostly due to the insurrection in the North of the country due to the activities of Boko Haram which is responsible for the deaths of 1,500 people this year alone (confirmed by Amnesty International). Fighting between the Nigerian Government and Boko Haram intensified last month causing a state of emergency to be declared in 3 states.
For more information in the possible devaluation of the Naira and its impact on Nigeria’s Heineken unit see: http://www.bdlive.co.za/africa/africanbusiness/2014/04/04/nigeria-currency-decline-may-hit-heineken-unit.
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By Stephanie Murphy